A limit price strategy involves charging a price that is lower than that required to maximize profits in the short run to signal to new entrants that the incumbent has a low-cost structure that the entrant likely cannot match.

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A limit price strategy is a form of predatory pricing where an incumbent firm intentionally charges a lower price than what is required to maximize profits in the short run in order to signal to potential entrants that the incumbent has a low cost structure and can sustain the lower price in the long run. This strategy is aimed at deterring entry and maintaining market power.

A Limit Price Strategy Involves Charging a Price That Is